Everybody follows a different path. Sometimes that path includes a late start on saving for retirement. Say that you have $0 in your retirement account right now. Is it too late? What can you get as a result of contributing $100 per month? Maybe more than you think.

Let’s start with an annuity equation that tells us our balance at retirement with some assumptions baked in. Let’s assume that we have zero dollars saved and contribute $100 per month. What rate of return do we earn? The S&P earns an average of 10% per year, which may not keep happening. We can conservatively assume 7.5%, but there are other concerns. Taxes and inflation will both eat away at that. Let’s subtract 2.5% for inflation with the Fisher approximation, leaving a real rate of return of 5%. We’ll chop off 20% due to taxes*. Below is the annuity equation that tells us the balance at retirement, depending on how many years from now you retire.

Assuming that you retire at 65 years of age, the graph below describes your balance at retirement depending on the age at which you started saving $100 per month. Of course, it’s not the balance that most people are worried about. Rather, we care about the implied monthly retirement check. The graph describes that on the right axis too, assuming that constant real payments will be made forever as perpetuity payments. We can see that getting started early matters a lot. But starting at age 40 still gets you real monthly retirement payments that are just shy of $200. That’s not too shabby.

Of course, nobody receives all of the perpetuity payments.

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